Difference Between Micro and Macro Economics - Definition, Pros and Cons

The study of how people work to convert limited resources into goods and services that help to meet their (unlimited) wants and how they allocate those resources among themselves is known as economics. Microeconomics and macroeconomics are the two main branches of economics. Difference between micro and macro economics will be explained in detailed in this article.

Microeconomics studies the behavior of a single unit, such as a person, business, home, market, industry, etc. However, macroeconomics studies the economy as a whole, meaning that it assesses the combination of all of the economic entities—firms, individuals, the country, industries, markets, etc.—rather than a single entity. Take a look at this article, where we've broken out the idea and all the key differences between micro and macro economics.

Micro Economics

Definition
Microeconomics is the area of economics that focuses on how individual economic actors—consumers, families, businesses, industries, etc.—behave and function within the economy. It determines how different people's needs can be satisfied with the limited resources available. Additionally, it sets out the requirements for the most efficient use of the available resources in order to achieve social welfare and maximum productivity.

In order to allocate scarce resources wisely and consider their alternative uses, demand plays an important role in determining the price and quantity of a product, as well as the price and quantity of complementary and substitute products.

Microeconomics examines how people and households spend their money. How does one determine how much money to set aside for unexpected expenses? With their limited resources, which combination of products and services most closely matches their requirements and wants?

It also decides what kinds of products and how many products an organization should produce to sell. What price value should the company set for the target market when offering its products and services? Which funding sources should the company turn to in order to launch or run the business? How many employees will be hired to work for the company, and at what rate? When should the company grow, cut back, and shut down?

Pros

• It determines the price of a particular commodity as well as the price of various production factors like labor, money, land, organization, and entrepreneurship.
• The enterprise is independent in taking decisions as it is based on a free enterprise economy.

Cons

• It is totally unrealistic to assume full employment in society.
• Only a small portion of an economy is examined; the majority is left unexamined.

Macro Economics

Definition
The entire economic event, or the overall economy, is discussed in macroeconomics. In simple terms, it focuses on issues that have an impact on the entire economy as well as the behavior and performance of aggregate variables.

In addition to covering major economic topics such as unemployment, poverty, general price level, total consumption, total savings, GDP (gross domestic product), imports and exports, economic growth, globalization, monetary and fiscal policy, etc., it also covers regional, national, and international economies.

Here, we go through how changes in macroeconomic factors lead to equilibrium. It determines what level of economic activity the economy has. What are the nation's rates of inflation, poverty, and unemployment? What problems lead to an acceleration or deceleration of the economy? What is the country's population's standard of living? How much does it cost to live in this country?

Moreover, macroeconomics not only analyzes problems the economy faces but also assists in finding solutions, allowing the economy to run smoothly.

Pros

• It determines the balance of payments and the reasons for its surplus and deficit.
• It resolves problems with public finances and helps in the decision-making process for fiscal and economic policy.

Cons

• Although the aggregates are homogeneous according to their analysis, this isn't always the case because they might occasionally be heterogeneous.
• It simply addresses the overall variables, which ignore the welfare of the individual.

Main Differences between Micro and Macro Economics

The main differences between micro and macroeconomics are given below:

• Microeconomics is the study of a specific economic unit, such as a person, family, business, or industry. It studies economic problems on an individual level. Whereas macroeconomics examines the entire economy, it does not focus on a single component but rather on aggregate components like total consumption, national income, and general price levels. It handles wide-ranging economic problems.

• The focus of microeconomics is on individual economic units. Whereas macroeconomics focuses on the whole set of economic variables

• Macroeconomics deals with environmental and external difficulties, whereas microeconomics is applied to operational or internal issues.

• The most important tools of microeconomics are supply and demand. Aggregate supply and demand, on the other hand, are the primary macroeconomic tools.

• Microeconomics studies a single product, business, family, sector, wage, price, etc. On the other hand, aggregates such as total consumption, total savings, total investment, national income, national production, and price level are the focus of macroeconomics.

• Microeconomics deals with questions such as how the quantities supplied and demanded of a particular good can be affected by its price and vice versa. Whereas macroeconomics discusses the primary issues of an economy, such as inflation, trade globally, poverty, monetary and fiscal policies, deficits, and unemployment,

• While macroeconomics helps maintain the general price level and resolves significant economic issues like inflation, deflation, disinflation, poverty, unemployment, etc., Whereas macroeconomics determines the price of a specific commodity along with the prices of complementary and substitute goods,

• Microeconomics analyzes an economy from the bottom up. Whereas macroeconomics examines the economy from the top down.

Basis for comparison	Micro Economics	Macro Economics
Meaning	Microeconomics is the branch of economics that studies the behavior of an individual consumer, family, or firm.	Macroeconomics is the branch of economics that studies the behavior of the whole economy, both international and national.
Restrictions	Based on unrealistic assumptions that there is full employment in society, which is impossible,	It involves the 'fallacy of composition', which sometimes proves untrue as it is possible that what is true for an aggregate may be untrue for individuals.
Business Application	It applies to operational or internal issues.	It applies to environmental and external issues.
Primary Tools	Demand and Supply	Aggregate Demand and Aggregate Supply
significance	It determines the prices of a product along with the prices of factors of production (capital, land, labor, entrepreneurs, etc.) within the economy.	It maintains stability in the general price level and resolves major economic problems like inflation, deflation, reflation, unemployment, and poverty.
Theory Covered	Theory of Factor Pricing, Theory of Economic Welfare, and Theory of Product Pricing	Aggregate Consumption, Theory of General Price Level, Theory of National Income, Economic Growth
Issues Covered	Demand, supply, product pricing, factor pricing, consumption, production, economic welfare, etc.	National income, distribution, general price level, employment, money, etc.
Assumption	All macro-economic variables are constant.	All micro-economic variables are constant.
focuses on	Individual economic variables	Aggregate economic variables

 

Interdependency

Both agree that proper utilization of productive resources is the only way to ensure the economic welfare of the country. We can state that they are connected in this way. In addition, understanding both of the branches of economics is necessary for completely understanding the topic at hand.

Conclusion

Micro- and macroeconomics are complementary fields rather than completely opposite to one another. Microeconomics and macroeconomics are the two sides of the same coin, just as every coin has two sides. They cover the entire economy because one side's merit equals another's demerit. The area of application is the only significant difference between them.